Why do China and Japan lend us so much money?

Question

I admit that I don't know much about this topic (hence why I am asking a question) but from what I have heard we are in an incredible amount of debt from the Iraq war and other things to countries like China and Japan.

Why would these countries keep lending us money when we will probably never pay them back?

Answer 1

They do not lend as much money as you belive they do.

Plus, it is the banks, investing in US Treasuries, not the countries themselves.

US Treasury bonds are a very safe investment.

But Japans investment in US Treasury bonds, has stayed static over the last 7 years.

China has increased thier holdings in US Treasury bonds from the 250 billion they held in 2001, to around 400 billion today.

Thats just 150 billion increase in 7 years.

It is the smaller countries buying 30 million here, 2 billion  there, who are funding the debt right now.

As to paying them back, US Treasury bonds are redemed every single week by the US government.

Treasury bonds have maturity dates, from 2 years to 30 years, depending on the bond type.

So countries redem them as they mature, then buy more to replace them.

Thats why it is so silly to hear people say, what will happen when they demand payment.

They cannot demand payment, untill the bonds are mature and they already do that.

Answer 2

coz they are stupid? dumb?

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Answer 3

so then they will be alliances to us and we will defend them if they are like attacked  

Answer 4

Because just like having a credit card debt, we need to pay an enormous ammount of interest.  

1. This gives them more and more money to use for their own Countries roads, bridges standing armies etc.

2. It gives them more control over our policies.  Since they can essentially set terms for various agreements or refuse to lend more, or call in the debt.

Actually, this was debated on CSPAN long ago and John McCain was very vocal and very good in terms of using this against Bush Tax breaks as a threat to our security,etc, etc.  So he has really flip flopped and I for one am disappointed.

There are many sources for this, however, I think one good one is a book called the Limits of Power, by Bacevich.  It outlines a great deal about the overall issues of being a debtor Nation among other issues.

You can get a breif idea of the concerns and issues Bacevich has by going to Bill Moyer's Journal on NPR and reading or watching the show.

Personally,  I have been concerned about this and there is a great deal about how it affects our Country from both political sides of the fence among serious thoughtful individuals.

Answer 5

They bought our treasure bonds and invested in our debt.  They also bought the bundled mortgages that went bad as well as good ones.  They get interest on them just like when you buy a bond.

Answer 6

They can't let US dollar go down because what they holding is US dollar.

I do know for a fact. Few americans are selling manufacturing knowledge in China for $100, 000 per month. So USA can pay.

Answer 7

You're only looking at one side of the equation (like most of the US that isn't in government or trained in economics).

We really need to educate people better in general, it's not your fault.

What do we give them?  There's two sides of that equation, and if you look, the US is not a debtor nation, but China and Japan are much closer to that state than we have ever been since our founding.

Answer 8

Both China and Japan sell you Americans loads of their exports. To keep you guys buying their stuff, they loan you. Also to keep this system running, they have to keep injecting new loans so the market called the USA for their exports, still exists.

Answer 9

American presidents like to be able to brag that they made the economy better.  The way they do this is through government spending.  When the government spends money, it goes into the hands of companies and working people, who spend it, and it circulates through the economy.

There's no magic in it, anyone can live better for a while if they don't mind going into debt!

Now it's very easy for the government to borrow money.  And since the bill for the debt won't come due for several years, every president has a huge incentive to run up big debts now, knowing that the bill will come due later, in another president's term.

(People will tell you that the president doesn't spend the money, that he only proposes a budget and Congress actually passes it.  Which is true, but the president provides leadership on this issue.  President Clinton is the only president in recent times to send a budget back to Congress because he thought it was too big.)

Japan and China work on a different system.  They plan for the long term, and in the long term it's better to be a creditor than a debtor.  Americans are obsessed with the short term--the next election, the next quarterly stockholder's report.  They don't really care what happens after that.  This is the weakness of our system.

A famous economist named John Maynard Keynes wrote about how government can fix a bad economy by temporarily spending a lot of money.  This is called Keynesianism.  FDR pulled us out of the Great Depression by starting government programs to put people to work and reduce unemployment.  Keynes meant that we should do this only in bad times to level out the economy.  But presidents after FDR saw that it worked so well that they wanted to do it ALL the time, and consequently our debt has grown out of control since then. Ronald Reagan, who spoke so strongly against Keynesianism when he was running for president, who said that balancing the budget was the most important job of any president, once he got into office he decided debt simply didn't matter.  He doubled the entire national debt in one term, and well into his second term he was insisting that his tax breaks would increase revenue enough to balance the budget.  Of course this didn't happen.  Reagan turned the US from the world's biggest creditor nation to its biggest debtor.

President Bush's deficits are the biggest in history NOT COUNTING the Iraq War.  We are so far in debt now, and our debt growing so quickly, that our currency is losing its value.  And that's how we will pay off the debt, by inflating our currency so we will pay it back in smaller dollars.  And all of us will be poorer.  Maybe we will learn from the experience.

Answer 10

because at any time they can pronounce us bankrupt and our country will spiral out of control, right now they have full control over us but bush here doesn't really care about that all he thinks about is winning this stupid war

Answer 11

If people truly thought we'd never pay them back, they would not be lending us money and the dollar would be worth 0.

People still believe in US.

Answer 12

the same reason canada gives somalia, ethiopia and the caribeans so much wheat on credit. it's an obligation, and part of keeping the world economy afloat. too long and hard to explain here, and not sure if after reading 20 pages, anyone can really make sense of it. at the same time your country is borrowing money, they are also putting out billions in foreign aid, and space research.

Answer 13

an amount of what the country makes in a year goes to paying debts, so the U.S does pay, as for all the other countrys that have debts

Answer 14

because then you owe them. One day China will say "remember that time I lent you that infinite amount of money....?"

Also the same reason that banks lend you or me money, there is a interest rate.

Answer 15

Probably to avoid conflicts.  I think the US is cocky and arrogant. Japan and China are reserved and don't want problems with the most powerful country.  Notice how we decide who gets to control weapons of mass destruction??

Answer 16

because we still make way more money than they do and they wouldn't even be anywhere near the countries they are today with out our help.

go look up the reconstruction of WWII and CIAworldfactbook for the richest countries in the world. we're still #1